Should you make $70k the minimum wage?

I am fascinated by companies like Automattic (WordPress) and Obvious Corporation (Medium) that are truly reinventing the workforce with models like Holacracy and the HQ-less company. I'm equally astounded by the amount of people, as evidenced here in FD, that suggest compensating for urgent but genuinely unimportant tasks with equity is a good idea.

My startup is at the point where I'm going to bring in people in key functions. We're doing interesting work, which helps attract the right people. I also believe in being careful with compensating with equity because we're going after a significantly sized market and may have to do several rounds before we stake a defensible leadership position.

Then, along comes Dan Price from Gravity Payments, who just announced $70k as the minimum wage at his company. He's going to lower his salary from ~$1M to ~$100k to pay for the increase. His decision is based on a Princeton study that points to $70k as the sweet spot for making people happy. http://www.nytimes.com/2015/04/14/business/owner-of-gravity-payments-a-credit-card-processor-is-setting-a-new-minimum-wage-70000-a-year.html

If recruiting globally as opposed to places like SV, do you think establishing a starting wage of $70k using a base + performance type structure is enough to bring in talent inspired to do great work? Because of our early stage, I'm not looking for impressive resumes or extensive experience as much as I'm looking for quantifiably smart, hungry people who want to make a positive difference in the world.

That's a wonderful salary for most of the country. It truly is a minimum for the Bay Area. Ok, honestly it's not enough for the Bay Area. Especially if you have a family and want to own a home.

That said, I agree it's a good step toward tightening the salary disparity in the industry. There was another good discussion around this, based more on gender inequality in salaries.

I also firmly believe in remote work for tech. Not only is technology at a wonderful point to make it completely feasible (and has been for a while), but it will also help the disparity and may even lead to a non over-inflated cost of living in the Bay Area.

Part of the reason why housing costs are so high in the Bay Area is supply and demand. So if remote work is proliferated among tech companies, there will be less need for people to move to the Bay Area which will reduce the housing inventory problem and thus lower pricing back down to somewhere close to Earth. I imagine it'll always be a more expensive area than most of the country, but it's truly getting out of hand. Of course the traffic might also improve as a result too =) Bonus. Actually, with remote working it will!

Honestly, (and I could be totally wrong) I think this is a very crucial process that must happen to avoid another crash. Otherwise we're going to keep inflating that tech bubble until it bursts again. Again, I could be wrong -- but I think it's movements like this that are so economically crucial for stability.

From my point of view, the net effect of Dan Price's announcement to pay a minimum wage of $70k is no less than a ban on salary negotiations--at least temporarily--for a particular contingent of his company's staff.

So rather than make this or Ellen Pao's decision an issue of gender polarity, I imagine that these types of announcements are more indicative of a shift in consciousness from one of survival of the fittest to one of human compatibility. What may appear to be extremes on the parts of these new leaders may in fact be an emergence of new thought springing forth from the same well. Consider that they may be making decisions from a place of consciousness that does not over-inflate the value of money. Rather than being a disruption, they may be--whether consciously or unconsciously--taking part in correcting a system that is presently functioning based on false premises and incorrect assumptions about money's role in our society. Only time will tell, but I expect to hear more announcements like these as more people become aware that keeping score with dollars is an obsolete model for measuring success or self-worth. #unlearnthelie

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Anonymous

April 20th, 2015

Funny, I just read this piece on salary levels within the fast food industry. The point it makes is interesting, in that each job has a value, and the value should determine the compensation. The danger of something like a minimum of $70k for everyone is that it might create an inbalance in that equation.

Exactly. It's thinking beyond "what is the custom" and instead, thinking about the nature of things and attempting to create a new paradigm.

@Dax

I read the article. I'm not sure it was written with the right spirit. It was most certainly written by looking in the rearview mirror instead of looking ahead. While his arguments may seem reasonable (I too held a $5hr job when I was 14) here are three hypotheses that Dan's strategy takes into account:

pay better, get better talent pool

nobody can reasonably live on $29k/yr, especially not in places like Seattle and San Francisco

(not as a company, but as a state) raising the minimum wage has been proven to correlate with more spending and more wealth for everyone

if you provide a salary that provides a good standard of living, especially if it's deemed "overpaid" by industry standards and therefore, hard to replace, you're not only going to do a damn good job to make sure you keep that job, you're also going to feel inspired to reciprocate and earn that salary through meaningful contribution

Dan's idea is an experiment. One that merits good consideration.

Dominic F. Tarantino
Entrepreneur who seeks to connect with bright people who are interested in bringing ideas to life.

April 15th, 2015

I love the question and the answer so far. I don't have a significant contribution that would warrant an answer, but I do believe that Dan Price has considered the risks involved with this move. On the other hand, a lot of CEOs can announce such a bold move, and a laudable one at that, but how long will it stick. How about making public the payroll and balance sheets for all to see. Otherwise, he could just be doing it to prove a point for a period of time and we also don't know what his entire package looks like. Dunno, maybe it's out there posted on Twitter or something, but admittedly, I have not looked into it. I certainly agree with Tom that this kind of action is a step in the right direction to bringing things back to reality. Very interesting topic.

I dont think that the answer to the question is simple, but Dan Ariely, in Predictably Irrational http://en.wikipedia.org/wiki/Predictably_Irrational taked about "Relative Salary's" and how people value themselves based on their relative compensation in relation to others that they work with. It is worth a lot of consideration. Sales people do very well in a competitive environment, but public employees who have their salary's published tend to have their job satisfaction tied to competitive salary charts. http://pibuzz.com/wp-content/uploads/post%20documents/New%20Hampshire_2008statesalaries.pdf

The real question is what will motivate and incentivise your employees properly, and different core competencies will have different expectations.

Keeping that in mind - he has set a fictional salary cap in his company to $100K and made it so that anyone making that is on par in value with the CEO.

There is one stat from the seemingly thousands in baseball that I think carries over well into the business world - WAR (wins above replacement). http://en.wikipedia.org/wiki/Wins_Above_Replacement

It attempts to capture a player's sum total contributions to the team's ability to win relative to the average warm body. It's a good way to judge players beyond flashy stats and evaluate the relative impact of otherwise overlooked role players. We could apply those same principles to employee compensation.

From the perspective of minimum wage, individual contributors in high efficiency work teams have a higher WAR than the CEO and in my book, ought to be paid more. A high minimum salary for that type of performance seems very reasonable. On the flip side, there are other employees who could be replaced entirely by software or machines and see improved outcomes. I'm hard pressed to justify a minimum $70k salary (plus benefits and training, overall cost of $140k-ish per year) when a $30k system could replace the person and see better outcomes.

A really interesting system would be a pay scale 100% performance based - so long as performance can be measured in a completely objective manner. You would have weekly, monthly, quarterly, and annual goals, and base salary/bonus would be determined by not only how you hit your goals, but also by WAR.

I love Predictably Irrational, great book! I agree with your point. However, I also feel that dynamic is responsible for irrational salaries like those of CEOs and athletes. Not sure that I want to promote that kind of "keeping up with the Jones's" downward spiral, in sales or otherwise.

Automattic, as an example, pays above standard but by no means the highest salaries in tech. The idea seems to be along the lines of the Gravity Payments strategy of paying enough to make pay a non-issue and then focus on providing engaging work and a great environment to coax great work. This kind of approach resonates far better with me. You can't just have a little competition. You either create a competitive environment where one person has to lose for another to win, or you create a team environment where everyone pulls together and you're motivated by not letting your team/company down.

@shingai

Never heard of WAR. Interesting. Challenging to calculate in a startup environment where change is the only constant but merits consideration, thanks!